The Economist forecasts a slow puncture not a burst bubble for Dubai real estate

This is clearly a debate that is not going to go away. But it was interesting to have the view from The Economist, which has been talking about real estate bubbles around the world for the past two years.

'I don't see a bubble in Dubai,' said Dr. Thorniley. 'It is more like a plastic ball that will let a little air out but it will not explode. But no economy booms forever.'

He pointed out that 80 per cent of the Fortune 500 companies are now located in Dubai, and that such diversification would support the real estate sector going forward with Dubai achieving the critical mass to support further economic growth.

Deyaar's optimism

Zack Shahin, CEO of Deyaar - the real estate arm of Dubai Islamic Bank whose $877 million initial public offering this month will be the largest ever in the UAE - repeated his view on the real estate demand situation in an interview with Gulf News.

'There is a monthly influx of more than 60,000 people to the UAE to take up new jobs. And even if we take into account 10 per cent of this influx as the potential number of residents in Dubai, we need to add around 70,000 units every year.'

But this interpretation of what must surely be airport arrivals is open to question as a source of likely future real estate demand, particularly as it makes no adjustment for the population profile of Dubai which is skewed towards lower-paid workers.

So even if 70,000 units were required every year, how much of this demand would be for the 200,000 mid-to-high-end units under construction in Dubai? However, it is remarkable that Dubai has managed to convince even the skeptics at The Economist that its economic model will continue to deliver miraculous growth.

New Dubai entrants

It is certainly not impossible to produce a wish-list of new companies that could enter Dubai or expand their operations here, and for these accommodation requirements to fill up what is being built. For example, every month Emirates Airline adds another aircraft and that flight crew has to be housed somewhere in Dubai.

In the past Dubai has always worked on the theory that 'build and they will come'. And that is probably what makes forecasting so tricky in Dubai real estate. This is an investment driven market and as a regional hub Dubai has a capacity to create its own future demand from nothing by attracting global business.

Whether there will be a mismatch in supply before that demand can be created is another issue, and perhaps that is where some air might be let out of the Dubai real estate boom, with the government choosing to hold back some developments while the demand emerges.